Green Trade Final Report November 2015 (2)/media/um/english... · and Mrs Ingrid Jegou and Mr...

Final Report

Study of the Impacts of Green Trade

Liberalisation on Least Developed

Countries

November 2015 Assignment performed by: Kenneth Baltzer and Michael Friis Jensen Department of Food and Resource Economics (IFRO) University of Copenhagen

Assignment performed for the Ministry of Foreign Affairs of Denmark (project manager Mr Adam Sparre Spliid, e-mail [email protected])

Final Draft: Impacts of Green Trade Liberalisation on LDCs

i

LIST OF CONTENTS

Acknowledgments iii

Acronyms and abbreviations iv

Summary v

1. Introduction 1

2. Background 5

2.1 The EGA negotiations 5

2.2 Identifying Environmental Goods 7

2.2.1 What is an environmental good? 7

2.2.2 Lists of environmental goods 9

2.2.3 Global trade in environmental goods 12

3. How the Environmental Goods Agreement may impact LDCs 17

3.1 Market access 17

3.1.1 LDC exports of environmental goods 17

3.1.2 Accessing global value chains 24

3.1.3 Standards and sustainability criteria 25

3.2 Access to imports 27

3.2.1 Access to environmental technology through the EGA 28

3.2.2 Technology transfer 31

3.3 SDT and A4T 33

3.4 Policy space 34

3.5 Tariff revenue 35

3.6 Implementation costs 37

3.7 Green protectionism 39

4. How the Environmental Goods Agreement may impacts Myanmar 40

4.1 Market access 41

4.1.1 Myanmar exports of environmental goods 41

4.1.2 Accessing global value chains 42

4.1.3 Standards and sustainability criteria 43

4.2 Access to imports 45

4.2.1 Access to environmental technology through the EGA 45

4.2.2 Technology transfer 46

4.3 Tariff revenue 48

4.4 Implementation costs 49

5. Conclusions and policy recommendations 51


ii

References 55


iii

Acknowledgments

The Ministry of Foreign Affairs of Denmark commissioned this report on the

impacts of a future Environmental Goods Agreement on the Least Developed

Countries. Associate Professor Kenneth Baltzer of the Department of Food and

Resource Economics (IFRO) of the University of Copenhagen together with

consultant Mr Michael Friis Jensen developed the report. From the Ministry side,

Ms Tanne Krogh Bertelsen lead the work from February to August 2015, while

Mr Adam Sparre Spliid took over from August to the conclusion of the work in

October 2015. We developed the report in close collaboration with a larger group

of people at the Ministry including Ms Bertelsen, Mr Spliid, Mrs Birgitte Mossin

Brønden and Mrs Lone Knudsen. We thank them all for their support, criticism

and contributions throughout the research process.

We would also like to thank Mr Christian Bundegaard and Ms Anemone

Birkebæk from the Danish Embassy in Geneva for assistance in organising the

Geneva trip and Ambassador Peter Lysholt Hansen and Mrs Khine Le Le San

Nant from the Danish Embassy in Yangon for helping organising the Myanmar

fieldwork. Mrs Urszula Maria Stepkowska from the European Commission, Mr

Ronald Steenblik from the OECD, Mr Muthukumara Mani from the World Bank,

and Mrs Ingrid Jegou and Mr Mahesh Sugathan both from the International

Centre for Trade and Sustainable Development (ICTSD) shared their in-depth

insight on green trade negotiations with us. We thank you very much for your

openness! We also are grateful for the fruitful discussions we had with Mrs

Emily Hemmings, Mr Jonas Lind, and Mr Mirko Woitzik from Development

Solutions who worked on a trade sustainability impact assessment of the

Environmental Goods Agreement commissioned by the European Commission.

And finally we thank the numerous individuals, agencies, country

representations and organizations we meet during fieldwork in Geneva and

Myanmar.

The views expressed in this report are our personal views and do not necessarily

reflect the position of the Ministry of Foreign Affairs of Denmark.


iv

Kenneth Baltzer Michael Friis Jensen

ACRONYMS AND ABBREVIATIONS

A4T Aid for Trade

ACP Africa, Caribbean, Pacific

APEC Asia-Pacific Economic Cooperation

EBA Everything But Arms

EGA Environmental Goods Agreement

EPA Economic Partnership Agreement

EPP Environmentally Preferable Product

EU European Union

GATT General Agreement on Tariffs and Trade

GNI Gross Domestic Income

HS Harmonised System

ICTSD International Centre for Trade and Sustainable Development

IMF International Monetary Fund

ITA Information Technology Agreement

LDC Least Developed Country

MFN Most Favoured Nation

NAMA Non-Agricultural Market Access

NTM Non-Tariff Measure

OECD Organisation for Economic Co-operation and Development

SDT Special and Differential Treatment

SPS Sanitary and Phytosanitary

TBT Technical Barriers to Trade

TRIPS Trade-Related Intellectual Property Rights

UNCTAD United Nations Conference on Trade and Development

UNFCCC United Nations Framework Convention on Climate Change

WITS World Integrated Trade Solution

WTO World Trade Organization


v

SUMMARY

17 WTO members negotiate the Environmental Goods Agreement (EGA) that

aims to liberalise green trade in the form of tariff cuts on an list of

environmental goods. In this report commissioned by the Ministry of Foreign

Affairs of Denmark, we ask what effects the EGA will have on LDCs, what are

the LDCs offensive and defensive interests and which assistance will help LDCs

adjust to a liberal green trade regime? The Ministry commissioned the report to

implement Denmark’s Action Plan for Policy Coherence for Development.

We find that the EGA currently on the negotiation table will neither benefit

nor harm LDCs. They may be affected either when their export markets cut

tariffs and opens their markets or when LDCs cut their own tariffs and gain

access to cheaper technologies to combat their own environmental problems.

LDCs exports will hardly be affected. LDCs export only about $1 billion of

environmental goods (about half a per cent of their total exports) and only a third

of this export is destined for countries negotiating the EGA. LDCs already access

the markets of most EGA negotiating countries tariff free due to preferential

trading arrangements. The environmental goods to be liberalised are too high

tech to be produced by LDCs either as finished products or as components.

In most LDCs, the EGA will not provide better access to green technologies. If

LDCs join the EGA, tariffs will in most cases not fall much because the average

tariff is a moderate 8.6%. For some industries in some LDCs, cutting tariffs may

increase imports because tariff peaks reach up to 40%. Eleven LDCs have average

tariffs above 10%. But even here, other factors than the price of technology

constrain its transfer. In Myanmar, we found that adverse government policy

and low private investment constrain renewable energy technology transfer.

But the EGA might evolve over time and if it does, it may become more

relevant to the LDCs. LDCs export many products that some observers claim are

environmentally friendly like cotton (view as greener than synthetic fibres). The

inclusion of many such products is, however, politically very difficult. More


vi

politically feasible it is to include the regulation of non-tariff barriers if the EGA

is changed in the future. LDCs may want to join the EGA if it becomes a forum

for regulating standards and sustainability criteria.


1

1. Introduction

Today, technology can address global and local environmental problems but

we do not always allow it. Much energy production, for example, is still based

on coal, while renewable energy technologies offer cleaner solutions.

Governments impose tariffs on the import of environmental goods embodying

such clean technologies, thus preventing technologies to flow freely from where

they have been invented to where they are needed.

The negotiations on a future Environmental Goods Agreement (EGA) seek to

remove this man-made obstacle. 17 WTO members currently seek a green

liberalisation by establishing a plurilateral trade agreement nested within the

WTO that would as a first step remove tariffs on environmental goods. The

target is to produce an agreement by the end of 2015 that likely will include

immediate green trade liberalisation in the form of tariff removal on an agreed

list of environmental goods and a plan for longer term liberalisation consisting in

the inclusion of more environmental goods and potentially even services and the

removal of non-tariff barriers.

17 high and middle income WTO members (including the European Union

(EU) as one member) are negotiating the EGA. While any WTO member is

invited to join the negotiations, no Least Developed Country (LDC) member has

so far chosen to do so.

The report was commissioned by the Trade Policy Department under the

Ministry of Foreign Affairs of Denmark. The report is part of the

implementation of Denmark’s Action Plan for Policy Coherence for Development

that establishes the interests of LDCs in international trade negotiations as a

Danish priority.

Purpose

The purpose of this report is to analyse the impacts on LDCs of the EGA.

Denmark is one of the WTO members negotiating the EGA through its


2

membership of the EU. The basis for the report is the terms of reference issued by

the Ministry of Foreign Affairs of Denmark, the project proposal agreed between

the Ministry of Foreign Affairs of Denmark and the authors and the Inception

Report submitted to the Ministry on 3 April 2015.

The report seeks to answer to the following research questions:

� What effects will the EGA have on LDCs?

� What are the concerns, interests and sensitivities of LDCs in green

liberalisation including offensive and defensive interests?

� What types of assistance will ease the transition and adaption to a

liberalisation of green trade to LDCs?

� Which measures can alleviate negative effects on LDCs?

Three policy agendas intersect in the EGA: environmental policy, trade policy

and development policy. To avoid that the pursuit of several policies

simultaneously result in contradicting policies, Denmark has adopted an Action

Plan for Policy Coherence for Development (Ministry of Foreign Affairs 2014).

This report is part of the implementation of the action plan. Answering the

research questions will allow us to say whether Denmark’s development policy

in the form of safeguarding LDC interests are aligned with Denmark’s

environmental and trade policies in the form of concluding the EGA.

Research methodology and limitations

We have reviewed the large academic and policy literature on green trade

liberalisation including both formally published literature and grey literature

like WTO documents from the Committee on Trade and Environment. The

existing literature is quite large, although often repetitive with many newer

studies referencing older ones. Most studies are overview studies, while more

academic studies like modelling analyses and in-depth case studies are rare.

Furthermore, we have analysed available data on trade flows and tariffs. The

most widely used source of trade flow data is the Comtrade database from the


3

United Nations Statistics Division that collects data on imports and exports from

all member countries’ national statistical agencies. Comtrade data presents two

specific challenges: First, not all member countries and in particular not LDCs

report trade statistics on a yearly basis, thus leaving significant gaps in the data

material. For instance, Myanmar has not reported data on trade flows since 2010.

And second, when both countries in a bilateral trade flow have reported import

and export figures, they do not always match. Myanmar’s reported exports of

timber to Thailand may not correspond to Thailand’s reported imports from

Myanmar. To address these issues, we use balanced data from the BACI database

(Gaulier and Zignago 2010), prepared by CEPII. The BACI database is derived

from Comtrade data, where the holes left by incomplete reporting are (partly)

filled by the mirrored data and where discrepancies between import and export

number have been reconciled through advanced statistical methods.

Data on applied tariffs matching the trade flow data are obtained through the

World Integrated Trade Solutions (WITS) portal developed by the World

Bank. The tariff database specifies a bilateral tariff structure including both Most-

Favoured Nations (MFN) tariffs and preferential tariff rates applied in regional

trade agreements and preferential market access regimes.

In the statistical analysis, we exclude intra-EU trade because the EU negotiates

as one entity and intra-EU trade is already duty-free. Adding intra-EU trade

would artificially inflate the potential impact of the EGA.

Interviews conducted in Geneva and Myanmar complement the literature

review and descriptive data analysis. In Geneva, we interviewed trade

negotiators from LDCs and other developing countries and from research and

policy institutions about the status of the negotiations. We also conducted a case

study of Myanmar focusing on renewable energy; a topic of particularly high

relevance to the country, because Myanmar has one of the world’s lowest

electrification rates leaving most rural households completely without electricity.

Myanmar is a large LDC located in fast growing South East Asia and we hoped

that the country’s size and location would allow us to study some of the impacts


4

of the EGA already identified at a general level in more depth. This case study

was based on stakeholder interviews, literature and descriptive data analysis.

Outline of the report

The report is organized in five chapters including the present introduction.

Chapter two provides the background for the EGA negotiations and for studying

the interests of LDCs in green trade and green trade liberalisations. Chapter three

identifies the impacts of a future EGA on LDCs and discusses each one based on

available literature and the descriptive analysis of trade flow and tariff data.

Chapter four studies the case of Myanmar, focusing on four of the impacts

already identified in chapter three. Chapter five concludes and provides policy

recommendations.


5

2. Background

2.1 The EGA negotiations

Negotiations on green liberalisation are part of the Doha Round. Paragraph

31(iii) of the Doha Ministerial Declaration mandates the WTO members to

negotiate the reduction or elimination of tariff and non-tariff barriers to

environmental goods and services.

The negotiations soon faced very severe political and practical difficulties.

Members could not agree to prioritize green liberalisation and at a practical level,

they could not agree which goods and services to focus on and which trade

barriers to remove. When the plurilateral EGA negotiations started in July 2014,

green liberalisation had not advanced in the WTO for years.

In 2012, the Asia-Pacific Economic Cooperation (APEC) agreed to liberalise the

trade of 54 environmental products. The heads of state of the 21 APEC members

met in Vladivostok and agreed to lower tariffs on the 54 goods to maximum 5%

by the end of 2015. Then, on 8 July 2014, 14 WTO members (counting the EU as

one) launched plurilateral negotiations on the EGA. The EGA would use the

APEC list of environmental goods as the starting point and focus on tariffs on

goods while leaving services and non-tariff barriers to later. Since then another

three countries have joined the EGA negotiations.

The plurilateral EGA is nested under the WTO and WTO members may join

the EGA negotiations at any stage. Trade benefits offered by a future EGA will

be extended to all WTO members following the Most Favoured Nation (MFN)

principle. Thus all WTO LDC members will enjoy increased market access for

environmental goods.

So far, the plurilateral group – which have grown to comprise 17 countries –

have held ten technical working group meetings. During these technical

meetings, the group has discussed ten different categories of environmental

goods, as illustrated in table 1.


6

Table 1. Past and future rounds of EPA negotiations

Date Topic Participants

9-10 July Framework and structure of the negotiations Australia, Canada, China, Costa Rica, EU, Hong Kong, Japan, Korea, New Zealand, Norway, Singapore, Switzerland, Taiwan, and US

22-26 September Ten categories of environmental goods for discussion agreed:

1. Air pollution control

2. Solid and hazardous waste management

ibid

2-5 December 3. Wastewater management and water treatment

4. Environmental remediation and clean-up

5. Noise and vibration abatement

ibid

26-30 January 6. Cleaner and renewable energy

7. Energy efficiency

+ Israel

16-20 March 8. Environmental monitoring, analysis and assessment

9. Environmentally-preferable products (EPPs)

10. Resource efficiency

+ Turkey and Iceland

4-8 May Start of second phase: discussion of “wish list” of environmental goods

15-19 June Continuation of second phase

27-31 July Continuation of second phase

16-22 September Continuation of second phase

29 October-4 November Continuation of second phase

30 November-4 December Future round

During the first six rounds, the EGA negotiators discussed ten different types

of environmental goods and each country suggested goods for consideration as

environmental goods. The negotiators discussed the various goods on a case-by-

case basis without attempting to define narrowly an environmental good. This

series of technical working group meetings ended in March. In April and May,

each negotiating country submitted a list of nominated products building on

their more indicative product proposals made during the previous technical


7

meetings. The individual lists of nominated products were subsequently

combined to a “wish list” of environmental goods containing about 650 goods. In

mid-August the chair of the EGA negotiations narrowed the wish list to 450

goods based on individual goods’ support during the negotiations and

environmental credibility (ICTSD 2015a).

To agree on the EGA, negotiators need to narrow the list further and to

establish the modalities for the final agreement. Likely, many goods have to be

precisely defined within international customs codes. The EGA will also include

a review mechanism allowing for products to be taken off the list and other

products to be added foreseeing that technologies will change over time. The

group of negotiation countries has informally set the WTO Ministerial

Conference in Nairobi in December 2015 as the deadline for a final agreement.

2.2 Identifying environmental goods

2.2.1 What is an environmental good?

The lack of a clear definition of an environmental good challenges the

negotiations. These challenges are related to dual-use products, Environmentally

Preferably Products (EPPs) and ex-outs (Sugathan 2009).

Many environmental goods are dual-use products that have both

environmental and non-environmental uses. For instance, batteries may be used

to store wind- or solar generated power, but they are equally suitable for storing

fossil fuel generated electricity. A customs officer has little chance to determine

the end use of imports when applying duties. The number of core environmental

goods with clear environmental benefits that few would dispute – like solar

panels, wind turbines and air purifying filters – is limited.

EPPs are products that possess certain environmental qualities relative to a

substitute product. Examples include sacks and packaging materials made from

jute and other plant fibres, which may substitute plastic bags, or biodiesel

replacing fossil fuels. Including EPPs in the negotiations is difficult. The


8

environmental benefits of many EPPs relate to the production process as

exemplified by biodiesel. Biodiesel saves CO2 if its production emits less CO2

than the fossil fuel it replaces. The CO2 emitted by biodiesel varies. An extreme

example is if biodiesel is produced from palm oil farmed on plantations that

cleared virgin rain forest. The clearing of the forest may have emitted more CO2

than what is saved by burning biodiesel instead of fossil fuel. Therefore, several

negotiating parties including the EU want to use sustainability criteria to identify

EPPs. EPPs will have to be certified that they comply with sustainability criteria,

but certification schemes may be costly to set up and may become non-tariff

barriers to trade.

EGA negotiators discuss using ex-outs to precisely define environmental

goods. In the language of the negotiators ex-outs are goods defined at a more

detailed level than what is allowed by the Harmonized Systems (HS)

nomenclature created by the World Customs Organization. The HS assigns each

product category with a numerical code; the more digits, the more disaggregated

the product category is. The HS-codes are standardized worldwide down to the

6-digit level (yielding more than 5000 categories), but below this, each country

uses its own system to add digits to create more finely disaggregated categories.

In the HS most environmental goods are grouped together with non-

environmental products. For example, the product category “901380: LCDs not

constituting articles provided for in other headings” contains “heliostats” (a

mirror that concentrates the sun and used to produce solar energy), but most of

the trade in this category is LCD flat screen TVs (Vossenaar 2014). The lack of

detail in the HS presents negotiators with a dilemma: Should the EGA include

the whole HS6 product category, thereby liberalizing many non-environmental

goods alongside the targeted environmental ones, or should the EGA use ex-outs

to focus on the environmental goods, thereby having to agree on their

classification internationally below the HS6 level? Using ex-outs allows

negotiators to identify environmental goods more accurately than the HS6 tariff


9

schedule allows, but it also produces a much more complex agreement, which

may be more difficult to implement, not least for developing countries.

Most nominated products are sophisticated technologies and products, like

wind mills and solar panels or components thereof. This choice of

environmental goods is both result of the nature of the negotiating members

involved and of the nature of environmental goods considered. The participating

members are high income and a few middle income countries primarily

interested in sophisticated environmental goods.

Observers have asked themselves whether this focus on sophisticated

environmental goods and the reluctance of LDCs to participate in green

liberalisation – under the newly started plurilateral negotiations, in the WTO

or elsewhere – is a true reflection of LDCs’ interests. UNCTAD (1995) and

Hamwey (2005), for instance, have argued that developing countries including

LDCs have export interests in environmentally preferable products, which have

played only a minor role in the plurilateral negotiations. Furthermore, while

LDCs do not produce sophisticated environmental goods, they need such goods

to combat their own domestic environmental problems.

2.2.2 Lists of environmental goods

At the time of writing (September 2015), the list of environmental goods on the

table in the EGA negotiations is confidential and we have not had access to it.

However, we have a good indication of what will form the core of a future EGA

from a variety of lists proposed during earlier negotiations under the WTO and

from lists developed by researchers engaged in the green liberalisation debate.

Table 2 presents an overview of the different lists and the number of HS6

categories proposed by the lists.

The individual lists overlap partly or completely. The most obvious

environmental goods, such as 841919 (solar water heaters), are represented on all

lists, and in some cases the same product category is on several lists but used as

the basis for different ex-outs. Accounting for the overlaps, a gross list of all


10

environmental goods identified in the lists comprises 575 HS6 product

categories, which is not far from the 650 reported in the EGA negotiations in

May.

The final agreement is, however, unlikely to include all 575 product categories.

Agricultural products, defined as HS chapters 1 – 24, are off the table from the

outset. This includes bio-ethanol under sub-heading 220710 and 220720, but

biodiesel included in 382490 may still be part of the negotiations1. Sources close

to the negotiations note that many of the about 650 products submitted by the

EGA members have been questioned and that a final agreement will likely

include some 200 products beyond the APEC 54 list (ICTSD 2015b).

Table 2: Lists of environmental goods

List No of HS6 product categories

APEC EVSL

The Early Voluntary Sector Liberalization (EVSL) initiative from 1997 by the APEC was the first attempt to identify environmental goods.

104

OECD

The OECD list is a purely illustrative list developed for analytical purposes and not as a basis for negotiations

123

“Friends” list

An informal submission to the WTO negotiations under the Doha round by the so-called “friends of environmental goods” comprising Canada, the EU, Japan, South Korea, New-Zealand, Norway, Chinese Taipei, Switzerland and the USA. In the latest revision (WTO 2010), it includes 164 HS6-categories.

164

WTO-2011

A compilation by the Chairman of the CTESS in 2011 collecting all submissions by member states in the Doha round negotiations. This list also includes the Friends list.

408

World Bank

In 2007 the World Bank identified a set of core environmental goods, which was proposed for accelerated liberalization. This list is a sub-set of the Friends list.

43

1 In the latest revision of the HS nomenclature from 2012, biodiesel constitutes its own product category (382600). In HS-2002 (that we use), category 382490 contains both bio-diesel and a wide range of other chemical compounds.


11

APEC-54

The list of 54 HS6 product categories slated for tariff reduction to 5% by the APEC countries.

54

ICTSD mapping studies

The International Centre for Trade and Sustainable Development (ITCSD) conducted three mapping studies on climate-mitigating technologies related to three specific subsectors: Renewable Energy, Transportation and Residential and Commercial Buildings.

188

Base list

We define the base list of the most likely environmental goods to be included in the EGA as the Friends list combined with the APEC-54.

171

Gross list

This is the combination of all lists proposed so far, accounting for overlaps.

575

Source: Own calculations based on APEC (2012), Jha (2009), Steenblik (2005b), Sugathan (2013a), Wind (2010), World Bank (2008), Vossenaar and Jha (2010b), WTO (2010), WTO (2011).

The statistical analysis in this report is based on a “base list” of environmental

goods consisting of the Friends list and APEC-54. We use trade and tariff data

according to the 2002 HS-revision. This base list is used as a “best guess” of the

set of environmental goods most likely to form the basis for a future EGA. The

list includes 171 HS6 categories, and may be on the low side of the future EGA.

However, it has the advantage of transparency and the proven support of several

of the central parties in the negotiations, including the EU, Japan and the USA.

We view the broader gross list of environmental goods as a pool of potential

products that could be added to the agreement, before the conclusion of the

agreement or after. In the statistical analysis of LDC interests, we search through

the gross list for products of potential interest to the LDCs.

Throughout the analysis, the numbers should be viewed as upper limits of the

effects of an EGA rather than precise estimates. The available data is specified

at the 6-digit level, while most environmental goods are designated at a more

disaggregated level through the use of ex-outs as noted above. This means that

the trade flow numbers presented here include both environmental goods and

products likely to be excluded from the EGA through ex-outs.


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2.2.3 Global trade in environmental goods

World trade in environmental goods has nearly tripled in 10 years to reach

$900 billion in 2013, see figure 1. The steady increase in this trade, representing

an average annual growth rate of roughly 10%, was temporarily interrupted by

the global financial crisis in 2008 and again in 2011. Nearly 90% of the global

environmental goods trade are exported from countries participating in the EGA

negotiations, notably participating OECD countries plus China. Total LDC

exports are miniscule.

However, increasing environmental goods exports do not represent a shift in

trade patterns towards greener trade. On the contrary, environmental goods

have largely maintained a steady share of world trade, at little more than 6% of

total trade, suggesting that the increase in green trade more or less follows the

general expansion in world merchandise trade over time. The countries

participating in the EGA negotiations have focused their exports slightly more on

environmental goods, while the share of environmental goods in the rest of the

world has declined slightly, but overall the trade pattern is stable over time.

Figure 1: Exports of environmental goods, 2003 – 2013

Source: Own calculations based on data from the BACI database, HS 2002 revision

0

100

200

300

400

500

600

700

800

900

1000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ b

illi

on

World EGA Non-EGA LDCs


13

Table 3 presents exports and imports of environmental goods both for selected

countries and for four groups of countries. The groups of countries are the

world, EGA negotiating countries, all other countries and LDCs. For each group,

the table indicates the four top exporters and the table also includes Myanmar

because it is chosen as a case country in this report. All numbers are from 2013.

Earlier plurilateral agreements, such as the Information Technology

Agreement (ITA), adopted a critical mass threshold of approximately 90% of

global trade as a precondition for the agreement to take effect. The idea of a

critical mass threshold is to reduce incentives for free riding. Since plurilateral

agreements require signatories to liberalize tariffs on an MFN-basis to be

consistent to WTO legislation, countries which are not part of the agreement also

gains from the improved access to the markets of the signatory countries without

having to reduce their own tariffs. A critical mass threshold of 90% ensures that

most of the countries benefiting from the agreement also contribute to it. Likely,

the EGA will include a critical mass threshold, but the negotiators are still to

agree on its size (Vossenaar 2014). Table 3 suggests that reaching a reasonable

critical threshold will be unproblematic.


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Table 3: Exports and imports of environmental goods, 2013

Exports Imports

$ billion % of

country

exports

% of

world

exports

$ billion % of

country

imports

% of

world

imports

World 905.03 6.1 100.0 905.03 6.1 100.0

EGA 792.02 8.4 87.5 605.97 6.0 67.0

EU 222.65 10.0 24.6 113.76 4.8 12.6

China 189.02 8.4 20.9 123.08 7.9 13.6

United States 124.06 8.7 13.7 131.86 6.2 14.6

Japan 88.56 12.0 9.8 35.59 4.6 3.9

Non-EGA 110.78 2.1 12.2 297.22 6.7 32.8

Mexico 27.92 7.5 3.1 36.13 10.2 4.0

Malaysia 12.78 4.9 1.4 12.62 6.6 1.4

Thailand 11.90 5.0 1.3 19.55 8.4 2.2

India 11.00 3.8 1.2 17.94 4.2 2.0

LDCs 0.94 0.4 0.1 13.30 5.2 1.5

Bangladesh 0.30 1.0 0.0 1.46 4.4 0.2

Tanzania 0.12 2.1 0.0 0.47 3.6 0.1

Cambodia 0.07 0.5 0.0 0.54 3.4 0.1

Myanmar 0.04 0.4 0.0 1.18 6.6 0.1


Table 3 also suggests that a country’s export interests decide whether it joins or

stays out of the negotiations and if it joins which goods it suggests for

liberalization. Countries that negotiate the EGA and countries that do not both

spend about 6% of their total import bill on environmental goods. But for EGA

participants the export of environmental goods constitute around 8% of their

total exports, for the EU and Japan that number is 10-12%. For the world as a

whole, that figure is only around 2%. EGA participants as a group have a

positive net exports of environmental goods, whereas net exports is negative for

countries that have so far chosen to stay outside the negotiations.

Based on export interests, LDCs have very little interest in the EGA

negotiations. LDCs export less than $1 billion of environmental goods,

constituting 0.1% of world trade, and environmental goods make up only about

0.4% of total exports from these countries. Bangladesh, Tanzania and Cambodia

are the largest environmental goods exporters among the LDCs, but even for

these countries, environmental goods exports represent at most 1-2% of total


15

exports. On the import side, however, LDCs are almost in line with the rest of the

world. A little more than 5% of LDC imports is environmental goods.

Interviews with developing countries’ delegations in Geneva made it clear that

LDCs show little interests in EGA negotiations. We interviewed in person or by

telephone LDC delegates from Rwanda, Ethiopia, Bangladesh, Mozambique,

Myanmar, Tanzania and Zambia. The general picture was clear: Few of them had

followed the EGA negotiations, much less developed a position on the issues. We

hypothesize that the stakes for LDCs are too small to warrant the devotion of

resources to the negotiations. We also interviewed delegates from Vietnam and

Thailand to gauge the interests of middle income countries. Both countries were

following the negotiations and Thailand was consulting with its own producers

of environmental goods to develop official positions. Neither country expressed

interest in joining the negotiations soon.

Table 4 presents the average tariffs, minimum and maximum tariffs on

environmental goods by the same countries and groups of countries as in table

3. Tariffs on environmental goods are already fairly low; on average 6.5%


16

Table 4: Import tariffs on environmental goods

Tariffs

Simple average Minimum Maximum

World 6.5 0.0 90.0

EGA 3.4 0.0 35.0

European Union 2.0 0.0 12.0

China 7.2 0.0 35.0

United States 1.3 0.0 10.3

Japan 0.3 0.0 5.3

Non-EGA 7.1 0.0 90.0

Mexico 4.0 0.0 20.0

Malaysia 7.6 0.0 40.0

Thailand 5.0 0.0 30.0

India 8.1 0.0 10.0

LDCs 8.6 0.0 40.0

Bangladesh 8.7 2.0 25.0

Tanzania 5.9 0.0 35.0

Cambodia 15.0 7.0 35.0

Myanmar 2.2 0.0 15.0

Source: Own calculations based on data from WITS, latest year.

globally and only 3.4% among the EGA members. This partly reflects the nature

of environmental goods. These are primarily industrial (and in many case high-

technology) products and the heavily protected agricultural products are

excluded from the negotiations. LDCs, on average, also impose relatively low

tariffs. Despite the low average tariffs in EGA countries and LDCs alike, tariff

peaks on some products are still substantial. In China, Tanzania and Cambodia,

for example, the highest tariffs are 35%, a figure that suggests that in certain

sectors market access can still be improved by reducing tariffs.


17

3. How the Environmental Goods Agreement may impact LDCs

3.1 Market access

This section analyses market access from three angles. First, it analyses LDCs

current trade flows of potential environmental goods in order to identify the

products of most export interest to LDCs. Second, it investigates the potential of

LDCs to supply global environmental good value chains. Thirdly, the section

looks beyond the EGA negotiations’ current focus on tariff reduction and

discusses how LDCs would fare if non-tariff measures in the form of standards

and sustainability criteria become a part of a future EGA.

3.1.1 LDC exports of environmental goods

LDCs export very few environmental goods and even fewer will be covered by

the EGA. Table 5 summarizes LDC exports of environmental goods and the

tariffs LDCs pay to foreign countries for those exports of environmental goods.

Here we discuss the export figures. The table gives both world exports and

exports to the EGA negotiating countries. Less than half a per cent of LDC total

exports are environmental goods (as defined in this study) and about a third of

that half per cent is exported to the EGA negotiating countries. The major share

of LDC exports of environmental goods is destined for neighbouring countries,

primarily other larger developing countries. For instance, as the main trading

partner of Bangladesh, India takes more environmental goods exports from

LDCs than the EU. Other major destinations are Thailand, Pakistan and Kenya.

In other words, a vanishingly small share of 0.16% of LDC exports would enjoy

the benefits of tariff reductions if LDCs were to join the EGA.


18

Table 5: LDC exports of environmental goods and tariff payments, 2013

Environmental goods exports Tariff payments

$ million % of total exports $ million % of total

tariff

payments

All

countries

EGA

countries

All

countries

EGA

countries

LDCs 943.4 333.1 0.45 0.16 0.41 0.01

Afghanistan 4.3 2.8 0.59 0.39 0.01 0.02

Angola 32.8 26.7 0.05 0.04 0.00 0.00

Bangladesh 303.6 96.8 0.98 0.31 0.35 0.03

Benin 3.2 1.0 0.34 0.11 0.00 0.00

Bhutan 0.1 0.1 0.07 0.05 0.00 0.09

Burkina Faso 8.6 3.2 0.32 0.12 0.00 0.00

Burundi 0.2 0.2 0.31 0.21 0.00 0.00

Cambodia 70.3 6.7 0.51 0.05 0.00 0.00

Central Afric. Rep. 0.7 0.1 0.61 0.05 0.00 0.00

Chad 1.0 0.3 0.04 0.01 0.00 0.00

Comoros 0.2 0.1 0.27 0.19 0.00 0.00

Congo, Dem. Rep. 3.9 0.9 0.05 0.01 0.00 0.00

Djibouti 1.1 0.2 1.47 0.33 0.00 0.00

Equatorial Guinea 8.7 6.8 0.07 0.05 0.00 0.00

Eritrea 9.5 0.2 3.77 0.07 0.00 0.00

Ethiopia 19.1 17.3 0.49 0.44 0.00 0.00

Gambia, The 0.2 0.1 0.10 0.05 0.00 0.00

Guinea 0.9 0.5 0.05 0.03 0.00 0.00

Guinea-Bissau 0.0 0.0 0.01 0.00 0.00 0.00

Haiti 0.5 0.4 0.05 0.04 0.00 0.00

Kiribati 0.1 0.1 0.12 0.10 0.00 0.00

Lao PDR 5.1 1.6 0.17 0.05 0.00 0.00

Liberia 2.7 1.9 0.24 0.17 0.00 0.00

Madagascar 15.3 9.7 0.70 0.44 0.00 0.01

Malawi 8.7 0.2 0.63 0.02 0.00 0.00

Mali 1.7 0.5 0.32 0.10 0.00 0.00

Mauritania 1.3 0.4 0.03 0.01 0.00 0.00

Mozambique 63.1 16.1 0.91 0.23 0.00 0.00

Myanmar 36.4 26.2 0.39 0.28 0.01 0.00

Nepal 51.8 0.8 5.75 0.09 0.00 0.02

Niger 27.6 27.1 0.90 0.88 0.02 0.00

Rwanda 3.1 0.3 0.34 0.03 0.00 0.00

Sao Tome & Princ. 0.4 0.3 3.42 2.75 0.00 0.00

Senegal 7.8 3.2 0.68 0.28 0.00 0.00

Sierra Leone 5.7 3.2 0.38 0.21 0.00 0.01

Solomon Islands 0.3 0.2 0.04 0.04 0.00 0.00

Somalia 0.2 0.1 0.04 0.03 0.00 0.00

Tanzania 118.0 55.2 2.11 0.99 0.00 0.00

Togo 23.8 1.8 1.31 0.10 0.00 0.00

Tuvalu 0.0 0.0 0.15 0.15 0.00 0.00


19

Environmental goods exports Tariff payments

$ million % of total exports $ million % of total

tariff

payments

All

countries

EGA

countries

All

countries

EGA

countries

Uganda 47.3 4.6 1.78 0.17 0.00 0.00

Vanuatu 4.3 0.0 1.26 0.01 0.00 0.00

Yemen 16.0 10.2 0.17 0.11 0.00 0.00

Zambia 33.6 4.5 0.28 0.04 0.00 0.00

Source: Own calculations based on data from the BACI database, HS 2002 revision, and WITS, latest year.

Bangladesh illustrates well that a very small part of LDC exports would be

covered by the EGA despite Bangladesh having the strongest capacity in

manufacturing of all LDCs. In 2013, Bangladesh exported $303 million or almost

one third of LDC environmental goods exports and is by far the biggest LDC

exporter. These $303 millions worth of goods represent only about 1% of

Bangladesh total and a little less than a third of the $303 million went to the EGA

countries.

The EGA will reduce LDC tariff payments only marginally. To illustrate that

the EGA will only lead to minor savings for LDC exporters, table 5 also shows

LDC tariff payments for their environmental goods exports. We estimate these

payments by multiplying the bilateral trade flows with the tariff that the country

faces on the export market taking into account trade preferences enjoyed by the

country on each particular market. For all LDCs combined, total tariffs saved

amounts to roughly $410,000 or 0.01% of total tariff payments. The very small

numbers reflect LDCs’ low environmental goods exports and the low tariffs that

LDCs meet on their export markets due to tariff preferences. Several LDCs pay

no tariffs at all and will therefore see no change in market access conditions due

to the EGA. We estimate that the EGA will save Bangladeshi exporters around

$350,000 in tariffs, corresponding to 0.3% of total tariffs paid, and for all other

LDCs the savings even smaller.

Likely, the EGA will preserve LDC trade preferences. While table 5 suggests

that the EGA will not significantly open more markets for LDCs, theoretically the

agreement could hurt the LDC export interests through preference erosion. LDCs


20

enjoy trade preferences in most EGA countries and the tariff reduction that an

EGA will lead to can erode this advantage. But at an average of 3.4% EGA

country tariffs are already low so LDC preferences are weak. Furthermore, LDC

and non-LDC exporters seem to compete in different markets. Higher income

countries export mainly renewable energy and wastewater management

technologies, while LDCs export mostly EPPs.

Our conclusions on LDC export interests are sensitive to the choice of goods to

liberalise in the final agreement. The negotiators keep the list of products they

discuss secret. Yet, by searching through our “best guess” base list of

environmental goods and the broader list of potential environmental goods from

the literature, we can identify the specific products with the largest potential

export interest among LDCs.

LDC export interests are highly concentrated implying that their small market

access benefits will be even smaller if negotiators exclude a few products from

liberalisation. On our base list of 171 HS6 product categories, just five categories

represent 55% of all environmental goods exported by LDCs to the EGA

countries, and a select few LDCs cover the bulk of exports. Table 6 lists these five

products and the most important exporters2. Two of the five products, jute (HS

530310) and sacks and bags made from jute (HS 630510) constitute 21% of LDC

exports covered by the base list. They are the most prominent examples of EPPs

on the list, but sources close to the negotiation say that these product categories

will not be part of the final agreement. The product category “Mirrors, prisms

and lenses (HS 900190)” is usually qualified by an ex-out identifying only

specialized “fresnel and parabolic mirrors” used to concentrate sun light in solar

power plants, while simpler mirrors, prisms and lenses will be excluded. While

the data do not allow the precise identification of LDC exports, they likely do not

2 We have also conducted the same analysis at the 4-digit level. In some product categories, the 6-digit categories are relatively detailed. For example, HS 8411, Other gas turbines includes HS 841181, gas turbines ≤ 5000 KW, and HS 841182, gas turbines > 5000 KW. The analysis at the 4-digit level aggregates such products to more concentrated categories. The 4-digit analysis generates the exact same picture as the 6-digit analysis, suggesting that LDC exports is indeed concentrated on a relatively few 6-digit product categories.


21

export the high-tech varieties covered by the EGA. Similar concerns could be

attached to HS 901580 covering specialized instruments and appliances for

measuring the ozone layer and monitoring the risk of earthquake, tsunamis and

cyclones.

Table 6: Top five LDC export of environmental goods to EGA members, 2013

Export value $ million

% of all LDCs

Jute and other textile bast fibres (HS 530310) Bangladesh 35.3 76.6 Tanzania 10.8 23.4

Mirrors, prisms and lenses ( HS 900190) Myanmar 23.8 59.3 Bangladesh 16.3 40.6

Other gas turbines > 5000 KW (HS 841182) Tanzania 38.4 96.6 Angola 1.3 3,1

Surveying, hydrographic, oceanographic, etc. (HS 901580) Niger 20.8 59.7 Angola 6.3 18.1 Mozambique 1.6 4.6

Sacks and bags, made from jute (HS 630510) Bangladesh 21.6 90.1 Cambodia 1.8 7.5


To identify environmental goods that can offer market access benefits to LDCs

and may be included in the EGA, we searched the broader list of

environmental goods and talked to sources close to the negotiations. Table 7

lists such alternative environmental goods. During earlier negotiations under

WTO, Saudi Arabia and Qatar supported natural gas as an environmental good.

Natural gas is controversial as it is a fossil fuel, yet it emits much less CO2

compared with competing fossil fuels. Some LDCs, including Yemen, Angola

and Myanmar export natural gas to EGA countries, but these countries import

almost all of it duty free. And since the EGA negotiating countries have low or

zero MFN tariffs on natural gas, the risk of preference erosion is minimal. If

natural gas were to be included in the final agreement, it would make little

difference for the LDCs.

EGA negotiators may classify waste and scrap metal from copper and other

precious metals as EPPs because recycling scrap metal saves energy compared


22

with smelting metal from ore. LDCs, including Zambia, Bangladesh, Benin,

Yemen and Angola, export some recycled metals to EGA members. Yet,

including such products in the agreement presents further challenges. Recycled

scrap metal is identical to metal produced from ore, and LDCs would have to

create costly certification schemes to allow buyers to know recycled from

conventional metal.

Table 7: LDC exports to EGA countries of alternative environmental goods,

2013

Export Tariffs paid $ million % of all

exports $ million % of total

Natural gas (HS 2711) 6,024 2.8 2.1 0.0 Yemen 2,494 26.4 0.0 0.0 Angola 406 0.7 2.1 1.0 Myanmar 128 1.4 0.0 0.0

Bicycles (HS 871200) 498 0.2 0.1 0.0 Cambodia 422 3.0 0.1 0.0 Bangladesh 76 0.2 0.0 0.0

Copper waste and scrap (HS 740400) 226 0.1 0.0 0.0 Bangladesh 38 0.1 0.0 0.0 Benin 33 3.6 0.0 0.0 Yemen 24 0.3 0.0 0.0 Angola 24 0.0 0.0 0.0

Waste and scrap of precious metals (HS 711299)

71 0.0 0.0 0.0

Zambia 68 0.6 0.0 0.0 Wood, sawn or chipped (HS 440710) 65 0.0 0.0 0.0

Cambodia 58 0.4 0.0 0.0 Mozambique 3 0.0 0.0 0.0 Tanzania 1 0.0 0.0 0.0


To tell apart EPPs from conventional products is a generic problem. Cambodia,

Mozambique and Tanzania harvest some of their wood sustainably and to access

markets paying higher prices for sustainably harvested wood products, these

countries need certification. At any rate, it makes little difference to LDCs

whether such products are included or not, as no tariffs are applied by the EGA

members.

Among the products EGA countries might agree to liberalise, we identify

bicycles as the only product LDCs have an interest in. Cambodia is particularly


23

strong and in 2013 exported $422 million worth of bicycles, of which 87% went to

the EU. This trade is roughly half the size of the total LDC environmental goods

exports as defined on our “best guess” base list. Bangladesh’s bicycle export adds

another $76 million, almost exclusively to the EU. These two countries are the

second and third largest exporters of bicycles to the EU after Taiwan. However,

due to already existing trade preferences, bicycle exports from LDCs can already

enter the EU duty free. Thus, while including bicycles in the EGA will have little

positive effect for Cambodia and Bangladesh, there is a risk that it could erode

their preferences. The EU imposes MFN tariffs of 14-15% on bicycles and

eliminating this would make the $800 million exports from Taiwan even more

competitive, at the expense of Cambodian and Bangladeshi exporters.

Besides the products listed in table 7, sources close to the negotiations have

mentioned biodiesel as a potential product of LDC interest. However,

according to Comtrade data, LDCs does not export biodiesel. Therefore biodiesel

is not included in the table.

Other studies analysing the EGA negotiations share our conclusion that LDCs

export very few environmental goods but some studies disagree. Wu (2014)

exemplifies those that agree with us. He finds that developing countries as a

group have little to gain from the EGA because they export few environmental

goods and other trading arrangements, like preferential trade agreements and

the APEC initiative, already covers most of the few environmental goods that

they do export. Furthermore, developing countries will benefit from market

openings anyway because EGA countries will liberalise using the MFN principle.

Other studies that find that developing countries in general or LDCs in particular

have few export interests in environmental goods include ICTSD (2008, 2009).

Like us, ICTSD (2009) argues that green technologies are primarily produced by

high and larger middle-income countries.

Instead, UNCTAD (2005) and Hamwey (2005) argue that developing countries

including low income countries and LDCs have strong interests in certain

environmental goods. In particular, these two papers argue that developing


24

countries at all development levels have large trade surpluses in EPPs, thus they

would benefit if tariffs are cut for these products. But Hamwey (2005) and

UNCTAD (2005) define EPPs so broadly that they become politically irrelevant

for the EGA negotiations. For example, they define cotton and all cotton-based

garments as EPPs, presumably because they view cotton as more sustainable

than synthetic fibres. Cotton may or may not always be environmentally

preferable, nevertheless the negotiating parties are extremely unlikely to accept

large categories like cotton and cotton products to be defined as environmental

goods, even if in the future the EGA countries start to discuss agricultural goods.

3.1.2 Accessing global value chains for environmental goods

Over the past quarter century, global value chains govern an increasing share

of the fast growing global trade. In such chains, the production is fragmented

and trade in intermediaries is very common. A central actor – typically a

multinational firm or a large retailer – organizes production. A paper published

by the IMF finds that global value chains create ever more of world income in

both industry and services. Trade in intermediaries is now more than two thirds

of total trade. The paper also establishes that if a country has been linked up with

global value chains since the mid-1990s, it tends to grow faster (Saito, Ruta and

Turunen 2013).

Many environmental goods are traded in global value chains. Thus, an LDC

can develop its green exports by integrating in global value chains. Bangladesh,

Laos and Cambodia have already done so in garments. Integrating in

environmental good global value chains allows an LDC to produce intermediary

products while benefitting from the knowledge, marketing skills and finance of

the large players governing the value chains. Global value chains are an entry

point into green exports avoiding having to produce the often technologically

demanding finished environmental goods.

Jha (2009) is one of very few studies that analyse integration in global

environmental goods value chains. He focuses on renewable energy and finds


25

that among developing countries, only a few middle income countries

participate. His study builds on Vossenaar and Jha (2010a) that identify

intermediary and final products and track how they are traded to identify

developing country participation. China is the world’s biggest exporter of

photovoltaic components and panels for solar energy production and Taiwanese

and Indian exports of these products grow rapidly too. In wind turbines, India is

the third biggest exporter. Brazil, China, India, Korea, Malaysia, Mexico,

Singapore, Taiwan and Thailand export significant quantities of renewable

energy components. But the rest of developing countries including all LDCs are

marginalised in global renewable energy value chains.

A recent study by the International Trade Centre, ITC (2014) reports that the

Philippines has entered the global photovoltaic cells value chain. Exports grew

fast from near-nothing in 2006 to over $1 billion in 2013 (thus largely after Jha

(2009) did his study). This growth is largely attributed to foreign firms, like US

SunPower or Solaria, outsourcing parts of the manufacturing process to the

Philippines. ITC (2014) attributes the Philippine success to the prior existence of

an electronics industry and the supply of skilled labour, in particular a large

number of engineers. LDCs are still not at the level of development that the

Philippines was when it integrated in global environmental goods value chains.

3.1.3 Standards and sustainability criteria

The EGA negotiations focus on tariffs, but some countries wants to include

options for reviewing and expanding the agreement in the future like a review

clause, a work programme or both. Such options might open the agreement to

new products and discipline other policy instruments than tariffs. Standards are

one such policy instrument. Standards are an essential part of many

environmental goods. This is true for high technology components that only fit

with other components if following exacting standards. It is also true for many

EPPs. EPPs must be recognizable by the buyer as being environmentally superior

to other similar appearing products. Therefore, it is often an intrinsic part of an

EPP to define precisely how to distinguish, for example, a biodiesel that benefits


26

the environment from one that harms it. Sustainability criteria are a type of

standards that are used to establish what constitutes an environmentally friendly

biodiesel. Organic food is another example of an EPP. Naturally, a globally

agreed standard on organic products is needed for organics to be recognized as

an EPP.

Developing countries mistrust including standards in trade and environment

discussions. This scepticism is based on some developing countries’ past

difficulties with complying with standards as for example food safety standards.

Many developing countries have strong export interest in industries where

compliance with standards is a major source of competitiveness. Especially LDCs

have had difficulties (Abiola and Wilson 2004; Jaffee, Henson and Rios 2011;

WTO and OECD 2013).

The inclusion of standards will cause two interrelated sets of problems for

LDCs: standards must be appropriate to LDCs and LDCs will need to

demonstrate compliance. To develop appropriate standards, standard setting

bodies need to include LDCs. But LDCs lack the educated people, technologies

and money to influence international standard setting. The lack of involvement

risks excluding LDC producers if the standards do not acknowledge the often

different production environments that these producers live in. An example is

the setting of carbon labelling standards.

Carbon labelling measures and displays the greenhouse gas emissions that a

product causes. Historically, analysts developed methods to calculate emissions

based on high income countries because their knowledge on actual greenhouse

gas emissions emanating from the varied production system around the world

was very rudimentary in particular in developing countries. A study by Brenton,

Edwards-Jones and Jensen (2010) analysed the consequences of applying a

carbon measurement standard that does not acknowledge the production

environment of an LDC in a case study of Zambian sugar production.


27

The highest contributor to emissions was the emissions caused by clearing

land for sugar. The burning of a forest to make space for sugar, for example,

emits much more greenhouse gases than the conversion of a wheat field to sugar.

If the use of the land is unknown the standard assumes a worst case scenario

consisting in clearing a virgin rainforest in Malaysia. In Zambia (and many other

LDCs), land use patterns are not always recorded. Thus, in some cases the

standard dictated the addition of an emission factor that would make Zambian

sugar look much worse than high income country sugar. Had Zambia been

involved in setting the standard, the standard might have included a more

accurate way of dealing with the problem of missing land use information.

LDCs lack the capacity in testing and certification to prove compliance with

standards. Generally, LDCs have not developed these trade support services

(Abiola and Wilson 2004). Often, exporters requiring such services must import

them at higher prices than what their higher income country competitors pay for

similar services.

3.2 Access to imports

While trade negotiators typically view access to export markets as their goal

and import liberalization as the price they have to pay to reach that goal,

economic research shows that most of the welfare gains from trade

liberalization come from the improved access to imports. Gains from imports

include both static gains occurring when the benefits to consumers from lower

import prices outweigh the costs to import competing producers and dynamic

gains from higher productivity and technology transfer.

For LDCs, the transfer of technology is very important. Eaton and Kortum

(1996) demonstrated that for all countries but the technological front runners

(United States, Japan, Germany, France and Britain), more than 90% of the

economic growth arising from technological innovation is based on imported

technologies.


28

3.2.1 Promoting access to environmental technology through the EGA

LDCs demand many environmental technologies and reducing the price of this

technology will ease its adoption. Table 8 presents LDC imports of

environmental goods and the associated tariffs; information that we use to

discuss how much liberalisation may ease the adoption of technology. Imports

are measured in millions of dollars and as a share of total imports to illustrate the

relative importance of environmental goods. Applied tariffs are presented as

simple averages, along with the minimum and maximum.

LDCs import more environmental goods than they export, around $13 billion

of imports compared to less than $1 billion in exports. This trade pattern

reflects the high-technology nature of most environmental goods. On average,

roughly 5% of total LDC imports are of environmental goods, close to the global

average of 6%. Among the LDCs, Bangladesh, Angola and Myanmar are the

largest environmental goods importers in absolute terms, partly reflecting the

size of the economies, but Chad shows the greatest environmental goods imports

relative to total imports of almost 13%.

Tariffs on environmental goods are moderate in most cases – around 8.6% on

average for all LDCs as a group. However, tariffs vary between countries. 11

countries have average tariffs of more than 10%, 25 countries of between 5% and

10% and 8 countries of less than 5%. Djibouti has the highest average tariffs with

24,8% and Myanmar and Tuvalu the lowest with 2.2%.

Tariff peaks are considerable in most countries. Sudan has the highest tariffs on

any environmental good in an LDC of 40%. 15 LDCs have tariff peaks of more

than 25%, 26 countries of between 10% and 25% and only 3 countries, namely

Afghanistan, Solomon Island and Yemen, of 10%

Low but positive tariffs may also distort trade. Several countries have minimum

tariffs, which are small but strictly positive. Angola, Bangladesh and Eritrea

apply tariffs as low as 2% and the minimum tariff rate in Djibouti is just 1%. Such


29

Table 8: LDC imports of environmental goods and associated tariffs, 2013

Imports Tariffs

$ million % of total Simple

average (%) Min. (%) Max. (%)

LDCs 13,298 5.2 8.6 0.0 40

Afghanistan 333 4.2 4.6 2.5 10

Angola 2,380 10.8 3.3 2.0 20

Bangladesh 1,463 4.4 8.7 2.0 25

Benin 194 2.5 8.9 0.0 20

Bhutan 22 8.8 13.7 0.0 30

Burkina Faso 216 5.1 8.9 0.0 20

Burundi 21 5.5 5.9 0.0 35

Cambodia 539 3.4 15.0 7.0 35

Central African Rep. 7 1.8 12.6 7.5 30

Chad 140 12.8 12.6 7.5 30

Comoros 45 7.0 12.3 0.0 20

Congo, Dem. Rep. 505 7.7 8.8 5.0 20

Djibouti 98 3.4 24.8 1.0 26

Equatorial Guinea 246 9.1 12.6 7.5 30

Eritrea 32 7.6 4.2 2.0 25

Ethiopia 838 6.1 12.9 0.0 35

Gambia, The 24 2.4 13.0 0.0 20

Guinea 155 4.2 8.8 0.0 20

Guinea-Bissau 8 3.6 8.9 0.0 20

Haiti 66 3.2 4.5 0.0 20

Kiribati 5 4.0 - - -

Lao PDR 563 8.8 6.2 5.0 30

Lesotho - - 3.2 0.0 20

Liberia 80 1.3 7.9 2.5 25

Madagascar 156 4.6 7.9 0.0 20

Malawi 96 3.2 5.2 0.0 25

Mali 125 5.0 8.9 0.0 20

Mauritania 249 4.3 9.6 0.0 20

Mozambique 412 4.0 6.9 2.5 20

Myanmar 1,185 6.6 2.2 0.0 15

Nepal 186 2.9 9.6 0.0 30

Niger 82 4.1 8.9 0.0 20

Rwanda 126 6.9 5.9 0.0 35

Sao Tome and Principe 4 2.6 9.8 5.0 20

Senegal 274 3.4 8.9 0.0 20

Sierra Leone 74 6.1 9.0 5.0 20

Solomon Islands 25 6.9 9.2 0.0 10

Somalia 19 1.1 - - -

Sudan - - 13.1 0.0 40

Tanzania 470 3.6 5.9 0.0 35


30

Imports Tariffs


average (%) Min. (%) Max. (%)

Togo 165 1.6 8.9 0.0 20

Tuvalu 1 2.2 2.2 0.0 33

Uganda 275 4.8 5.9 0.0 35

Vanuatu 17 4.6 4.4 0.0 20

Yemen 554 4.1 5.4 5.0 10

Zambia 823 8.1 10.7 0.0 25

Source: Own calculations based on data from the BACI database, HS 2002 revision, and WITS, latest year

“nuisance tariffs” generate little revenue, but may nevertheless restrict imports

by forcing importers to go through cumbersome customs clearings procedures

causing delays and adding transaction costs. No firm estimates of the costs of

nuisance tariffs exist, but they may be substantial, not least in countries with less

developed and overburdened customs institutions.

The analysis suggests that even though LDC tariffs on environmental goods

are low on average, participating in the EGA may still generate gains for some

LDCs by promoting cheaper access to environmental technologies. High tariff

peaks still exist, and simplifying the tariff structure and eliminating nuisance

tariffs could reduce transactions costs involved with getting imports through

customs. However, such gains will only materialise if LDC governments and

customs officials have the capacity to implement the agreement transparently

and efficiently.

In a study commissioned for the Norwegian Ministry of Foreign Affairs,

Knudson, Aspen and Hermansen (2015) seek to identify goods of relevance to

developing countries. They focus on sanitation, on waste management, on water

supply and availability, and on access to renewable energy. They argue that

developing countries suffer from grave environmental problems that the import

of technologies in these areas can address and identify fifteen products that

embody such technologies. They suggest that these fifteen products are included

in the EGA negotiations. This study, however, suffers from taking an exclusive

supply-side approach. It does not evaluate whether the EGA will be an effective


31

and efficient means combat the environmental problems that they identify. Our

analysis suggest that in many cases the contribution of tariff liberalisation to the

transfer of technologies discussed by Knudson, Aspen and Hermansen (2015)

will be small because tariffs are mostly moderate.

3.2.2 Technology transfer

Technology transfer has been a hot issue in several negotiations where both

developed and developing countries are involved. The WTO Working Group

on Transfer of Technology was established by the Ministers in Doha and aims to

examine the relationship between trade and the transfer of technology from

developed to developing countries, and ways to increase the flow of technology

to developing countries. Removing tariffs on environmental goods reduces the

price of new technology. But many other factors influence technology transfer.

Therefore the WTO has discussed technology transfer in several forums

including in the Committee on Trade and Environment. Individual WTO

agreements like the TRIPS Agreement also give rise to intense technology

transfer debates. Probably most relevant for the EGA negotiations, the United

Nations Framework Convention on Climate Change (UNFCCC) also work on

technology transfer.

The Conference of the Parties to the UNFCCC established the Technology

Mechanism in 2010. This mechanism – still under development – will deploy

technology to support climate mitigation and adaption activities in developing

countries. Supported activities can be research and development, demonstration,

diffusion and transfer of technology (Blanco, Coninck and Würtenberger 2012).

A study by the Intergovernmental Panel on Climate Change (IPPC) has

identified potential constraints to technology transfer. The constraints

identified by the study are shown in Box 2. Such constraints are confirmed and


32

elaborated upon throughout the very large literature that exists on technology

transfer to developing countries3.

Box 2. Potential constraints to technology transfer � Lack of full-cost pricing, which internalises environmental and social costs; � Poor macroeconomic conditions, which could include underdeveloped financial sector, high

import duties, high or uncertain inflation or interest rates, uncertain stability of tax and tariff policies, investment risk;

� Low private sector involvement because of lack of access to capital, in particular inadequate financial strength of smaller firms;

� Lack of financial institutions or systems to ensure initial investments for the utilisation and extended use of transferred technologies;

� Low, often subsidised conventional energy prices resulting in negative incentives to adopt energy saving measures and renewable energy technologies;

� Lack of markets for environmental goods and technologies because of lack of confidence in economic, commercial or technical viability, lack of manufacturers, lack of consumer awareness and acceptance of technologies;

� Lack of supporting legal institutions and frameworks, including codes and standards for the evaluation and implementation of environmentally sound technologies;

� Lack of understanding of the role of developed and developing countries and international institutions in the failures and successes of past technology cooperation;

� General lack of support for an open and transparent international banking and trading system; � Institutional corruption in both developed and developing countries; � Reluctance to identify and make available environmental goods and technologies that are in the

public domain; � Insufficient human and institutional capabilities; � Inadequate vision about and understanding of local needs and demands; � Inability to assess, select, import, develop and adapt appropriate technologies; � Lack of data, information, knowledge and awareness, especially on "emerging" technologies; � Lack of confidence in unproven technologies; � Risk aversion and business practices that favour large projects in financial institutions including

development banks; � Lack of science, engineering and technical knowledge available to private industry; � Insufficient research and development because of lack of investments in research and

development and inadequate science and educational infrastructure; � Inadequate resources for project implementation; � High transaction costs; � Lack of access to relevant and credible information on potential partners to allow for the timely

formation of effective relationships that could enhance the spread of environmental goods and technologies.

Source: IPPC (2000).

3 For a couple of newer overview studies containing many case studies, see Ockwell and Mallet 2012 and Haselip et al. (2011).


33

Examples of typical LDC problems include the lack of an enabling

environment, poorly developed financial institutions, and distorted prices.

Many environmental technologies like hydro power require an enabling

environment with laws conducive to foreign investment and standards that

allow for the interoperability of the different components of a network, like an

electrical grid. Many technologies are large scale and must be funded which

require a welcoming attitude and a regulatory framework that allow for foreign

direct investment. Capital to finance the investment is often scarce and

expensive. In rural areas, capital even for small scale investment like household

solar panels allowing access to electricity without connections to the national

grid may be altogether absent.

Energy prices are often subsidized which threatens the private profitability of

investments in clean energy that are socially profitable. Two sector studies

discuss non-tariff barriers relative to tariffs specifically for renewable energy that

is a key sector in the EGA negotiations. Jha (2009) found that subsidies and other

incentives explain more of increased imports of renewable energy equipment

than tariffs. Jha (2009) also observed that access to finance including venture

capital and supportive policies including energy regulations, feed-in tariffs and

concessionary loans all help establish a well-functioning market for renewable

energy. Kirkegaard, Hanemann and Weischer (2009) study the wind energy

industry and conclude that global integration of the industry is held back more

by formal and informal non-tariff barriers distorting investments than tariffs.

3.3 SDT and A4T

The Uruguay Round included articles on Special and Differential Treatment

(SDT) for developing countries in every agreement. SDT is also a major issue in

the negotiations under the UNFCCC. The strong tradition for offering lenient

terms to developing countries also influences the EGA negotiations. Sources

close to the EGA negotiations report that developing countries like China seek

SDT especially longer implementation periods for tariff reductions. However,

high income countries are very reluctant to include SDT in the EGA negotiations


34

likely because environmental goods are primarily produced by relatively strong

firms in middle income countries that compete with high income country firms.

WTO practice allows for the possibility of differentiating in favour of LDCs.

In fact, this is the only possibility beyond differentiating in favour of the full

group of developing countries. However, EGA negotiators have not discussed

that possibility because no LDCs have expressed interest in the negotiations.

Another way of favouring developing countries in general and LDCs in

particular is to offer development assistance to build capacity to exploit the

benefits of trade potentially offered by trade agreements. Such assistance for

trade is called Aid-for-Trade or A4T. EGA negotiators have not discussed A4T in

detail, but A4T has been a major issue in the parallel UMFCCC negotiations.

However, developed and developing countries remain far apart (Diringer 2009).

China and the principal group of developing countries including many LDCs the

G77 have proposed that developed countries finance the development and

adoption of new technology in developing countries with initiatives ranging

from basic research to factory building. Developed country, however, are very

reluctant to commit themselves to the high financial outlays and the risk of

financially supporting future competitors.

3.4 Policy space

The issue of policy space has been one of the most contentious issues in WTO

debates. UNCTAD (2004) defines policy space as the scope for domestic policies

to pursue development, especially in the areas of trade, investment and

industrial development. Whether policy space is desirable depends on ones view

on the development process. Advocates of a liberal perspective view policy space

arguments as excuses for protectionism while believers in the merits of more

government intervention view policy space as the liberty of developing countries

to apply a necessary set of instruments to overcome competitive disadvantages

of a new industry. These instruments could include tariff protection and local

content requirements contradicting WTO law.


35

Policy space is a topic in green liberalisation discussions. China, for example,

refers to its developing country status when arguing for its right to apply

industrial policy. Middle income countries not part of the EGA negotiations, like

Brazil for wind turbines and India for solar panels, use tariffs to pursue

industrial policy targeting the development of national industries (Vossenaar

and Jha 2010). During fieldwork for this paper, the authors discussed industrial

policy with the Thai WTO representation that does not participate in the EGA

negotiations. Thailand wanted to protect its renewable energy industry. It should

be noted that for many environmental goods, in particular for renewable energy,

high income countries apply very active industrial policy although rarely tariff

protection but subsidies and support to research and development.

LDCs appear to be in a different situation than the middle income countries

that are currently arguing for policy space for environmental goods. LDCs are

not strong manufacturing nations and none of them has environmental good

industries they would want to protect. New environmental good industries will

most likely target exports as LDC home markets are very small. An emerging

environmental good industry would initially be based on assembly, thus

requiring the import of components that would have to enter at low tariffs. The

tariff protection instrument – the use of which a future EGA would discipline -

would be an ineffective policy instrument.

3.5 Tariff revenue

Import tariffs are an important source of public revenue in most LDCs,

especially those with few natural resources. It is easier to tax imports at the few

ports or border crossings than to tax incomes or turnover through more

decentralized income taxes and VAT. Table 9 estimates the tariff revenue of LDC

imports of environmental goods. We do not have data on collected revenue, but

estimate revenue by multiplying imports of every good from every country of

origin with the corresponding tariff rate.


36

The total estimated loss of tariff revenue for all LDCs combined amount to

roughly $855 million, corresponding to nearly 4% of total tariff revenue. The

countries with the largest losses in absolute numbers are Bangladesh, Angola and

Ethiopia due to their larger economies and higher-than-average environmental

goods imports, and Cambodia due to its high tariffs on environmental goods.

The shares of environmental goods tariffs are low in most countries, with 12

LDCs earning less than 3% of the total tariff revenue from environmental goods

and 24 countries earning between 3% and 7%. Six LDCs, however, earn more

than 7% on environmental goods with the Comoros, Chad and the Solomon

Islands having the largest shares of, respectively, 11.8, 10.0 and 9.3%.

For most LDCs, the numbers do not appear large if compared with other trade

reforms. For example, Fontagne et al. (2008) estimate that the EPAs between the

EU and six ACP regions could result in losses of tariff revenue ranging from 5.7%

to almost 44% of total tariff revenue for some LDCs. Also, the estimates in table 9

should be viewed as upper limits of the expected effects as we cannot account for

the ex-outs specified under each HS6 category.

Table 9: Estimated tariff revenue from imports of environmental goods, 2013

Tariff revenue Tariff revenue Country $ million % of

total tariff

revenue

Country $ million % of total tariff

revenue

LDCs 855.0 3.9 Liberia 5.2 0.9

Afghanistan 12.7 2.8 Madagascar 11.4 5.3

Angola 75.8 4.9 Malawi 3.0 2.4

Bangladesh 101.7 2.7 Mali 9.6 4.7

Benin 17.6 1.8 Mauritania 22.1 4.0

Bhutan 2.5 6.7 Mozambique 17.5 4.1

Burkina Faso 18.0 6.5 Myanmar 24.5 2.7

Burundi 1.2 5.6 Nepal 17.0 2.5

Cambodia 67.2 5.3 Niger 6.0 3.1

Central African Rep. 0.8 1.6 Rwanda 6.2 4.0

Chad 16.6 10.0 Sao Tome and Princip. 0.4 3.4

Comoros 6.8 11.8 Senegal 22.5 3.9

Congo, Dem. Rep. 44.9 6.2 Sierra Leone 6.0 5.2

Djibouti 29.9 1.5 Solomon Islands 1.9 9.3

Equatorial Guinea 29.3 7.5 Somalia - -

Eritrea 1.6 7.1 Sudan - -

Ethiopia 76.0 5.3 Tanzania 37.8 4.6

Gambia, The 4.5 3.2 Togo 14.9 2.3


37

Tariff revenue Tariff revenue Country $ million % of

total tariff

revenue

Country $ million % of total tariff

revenue

Guinea 14.8 3.9 Tuvalu 0.0 1.2

Guinea-Bissau 0.7 3.0 Uganda 10.3 2.4

Haiti 4.0 3.1 Vanuatu 2.4 4.9

Kiribati - - Yemen 26.5 5.3

Lao PDR 30.3 6.0 Zambia 52.8 9.9

Lesotho - -


3.6 Implementation costs

During the Uruguay Round, developing country undertook an unprecedented

number of commitments, some of which proved much more costly to

implement than foreseen. Ever since, LDCs have been understandingly worried

over the potential costs of new commitments.

Prior to the Uruguay Round, the implementation costs of trade agreements

were small because liberalising trade consisted mainly of general cuts in

tariffs and the removal of quantitative restrictions. The Uruguay Round

introduced regulation on many beyond-the-border issues that required deep

institutional reforms. This regulation was articulated in the SPS and TBT

Agreements, the TRIPS Agreement, the Custom Valuation Agreement and

several other agreements. Finger and Schuler (2000) have estimated that full

implementation of the Uruguay Round commitments in such agreements would

costs many LDCs the equivalent of a full year’s development budget (Finger and

Schuler 2000). LDC scepticism towards such agreements have been heightened

by the fact that this type of agreement has to a large extent been included

following pressure from high income countries with little input from LDCs in the

negotiation of these agreements. Thus, LDC saw little need for these agreements

and had little voice in their design, but had to carry the full costs of their

implementation.


38

The EGA will require changes in customs procedures because the Harmonized

System used to classify goods for customs purposes does not allow customs

officials to properly identify environmental goods. The HS only standardizes

products to the six digit level meaning that broad categories of goods are lumped

together in aggregate categories including both environmental goods and

conventional products.

The EGA negotiators discuss two approaches to the problem presented by the

current HS system. Either to identify so-called “ex outs” that is individual

environmental goods which must be separated from similar products without

green credentials by reforming the HS codes thus creating internationally

harmonized codes at a higher level than the current six digits. Or to adopt a more

pragmatic approach and allow goods that are not environmental goods to be

liberalised alongside environmental goods through the liberalisation of entire HS

six digit level categories. The choice is between on one side the environmental

credibility of an EGA and on the other ease of implementation. Reforming the HS

system will lead to implementation costs of the EGA. Too many ex outs, and the

difficulties of reforming customs procedures will increase.

Many LDCs have reformed customs procedures over the two latest decades

and the trend has been toward customs simplification. LDCs have historically

applied complex tariff schedules with highly variable tariffs for different

products. The many different tariff levels have caused confusion for traders and

been the basis for extended negotiations between customs officials and traders on

how to classify goods. Customs simplification has aimed to reduce the multitude

of different tariff levels and replace them with a few broad bands.

Zake (2011) finds that most African countries have rationalized, simplified and

reduced the number of tariff bands. Tanzania exemplifies this approach. Prior

to the establishment of the East African Customs Union of which Tanzania is a

part today, Tanzania had reduced its tariff structure to five bands, namely 0, 5,

10, 20 and 35%. The formation of the East African Customs Union reduced the

number of bands even further to three, namely 0%, 10% and 25%.


39

LDCs could worry that an EGA and especially an EGA with many ex outs

would threaten the gains already made through customs simplification. A

complicated EGA would remove tariffs on specific products while leaving others

at their historical levels and therefore increase the complexity of the tariff

schedule.

3.7 Green protectionism

Developing countries including LDCs often look with suspicion to linking of

trade and environment fearing that environmental concerns will be misused as

green protectionism. LDCs may be worried that the EGA distinguishes between

green goods and conventional ones and grants the first ones the best treatment.

Developing countries including the LDCs have traditionally opposed ideas of

distinguishing products by environmentally defined production methods. In the

discussion of green liberalisation in the WTO Trade and Environment

Committee, many developing countries did not submit lists of environmental

goods because they were opposed to the idea of distinguishing between products

on the basis of their production methods. They fear that even if an agreement of

the liberalisation of environmental goods could be written in a way that

accommodates their fears of green protectionism, the mere acknowledgement of

the principle of differentiation on the basis of production methods could be used

in other negotiations areas. LDCs likely fear that high income countries would

hinder their imports because of the generally poor environmental conditions in

LDCs (Howse and van Bork 2006). LDCs may face a difficult choice of viewing

EPPs as examples of the differentiation between products on the basis of

production methods against which they have been strongly opposed historically

or as opportunities for the valuation of the environmental characteristics of parts

of their export portfolio. Hamwey (2005) argues LDCs’ potential for exporting

environmental goods is based on EPPs.


40

4. How the Environmental Goods Agreement may impact Myanmar

Myanmar is a country with 53 million inhabitants neighbouring Bangladesh

and India to the North West, China to the North East, Laos and Thailand to the

East and with a long coastline bordering the Andaman Sea to the South.

Myanmar is only just opening up after a prolonged period of political and

economic isolation that ended after a series of political reforms were enacted

during 2011-12. The opening has spurred a process of economic growth and

restructuring that begins to change Myanmar society.

Incomes are much lower than in the countries currently negotiation the EGA

agreement. The average Myanmar citizen earns $1,270 yearly4 while that average

for the negotiating parties is almost 20 times as high, e.g. about $23,000; ranging

from Norway’s $103,050 to China’s $7,3805. The low income of Myanmar is a

good indicator that the economic structure of the country is radically different

from the one found in the negotiating parties. Myanmar exports primarily

natural gas, mineral products, food and garments with virtually no domestic

production of the advanced technologies that constitute nearly all the

environmental goods discussed in the EGA negotiations.

We visited Myanmar from August 16th to 23rd 2015 to conduct a case study on

how the EGA will impact the country. Our general analysis of LDCs did not

identify an LDC likely to be strongly affected – positively or negatively – by the

EGA. We chose Myanmar as our case because of its location in dynamic South

East Asia that lead us to suspect that Myanmar is one of the LDCs most likely to

benefit from global environmental goods value chains. We hypothesized that

such value chains will benefit from Myanmar’s abundance of cheap labour. Thus

Myanmar might reap benefits from the EGA on the export side if it becomes a

supplier of environmental goods components. On the import side, Myanmar

needs access to green technology to combat environmental problems and to

develop its energy sector. Among the LDCs, Myanmar has some of the lowest

4 Measured as Gross National Income (GNI) per capita. 5 Calculated from the World Bank databank (databank.worldbank.org) using figures for 2014.


41

tariffs for imports of environmental goods with an average tariff of 2.2% and

maximum tariffs of 15.0%. Yet the complex import regime of Myanmar gives

reason to believe that non-tariff measures are substantial. In our case study, we

focus on four issues: market access, access to imports, tariff revenue and

implementation costs.

4.1 Market access

4.1.1 Myanmar exports of environmental goods

Myanmar’s exports of environmental goods are very small. In 2013, Myanmar

exported only $36.4 million worth of environmental goods including $26.2

millions’ worth for countries participating in the EGA negotiations (primarily

China) as illustrated in table 10. These values correspond to 0.39% and 0.28% of

Myanmar’s total exports. But these small numbers may be vastly exaggerated.

Most of the exports of environmental goods reported here (roughly 85%) is under

the category, “HS 900190: Mirrors, prisms and lenses”. Likely, an ex-out will

detail that only “Fresnel and parabolic mirrors” used to concentrate sunlight in

solar power plants will be covered by the EGA. To the extent that Myanmar’s

export under category HS 900190 mostly reflects other products under the

product category, such as prisms or standard mirrors, the country’s export of

environmental goods may be far smaller than suggested here.


42

Table 10: Myanmar exports of environmental goods and tariff payments, 2013

Exports Tariffs paid

$ million % of total exports $1000 % of

total All

destin.

EGA All

destin.

EGA

Myanmar, total 36.4 26.2 0.39 0.28 91.6 0.02

Mirrors, prisms and

lenses (HS 900190) 31.1 23.8 0.33 0.25 - -

Reservoirs, tanks, vats

(HS 730900) 1.5 1.1 0.02 0.01 29.8 0.00

Other electrical

machines (HS 854389) 0.3 0.3 0.00 0.00 - -

AC generators

(HS 850164) 0.1 0.1 0.00 0.00 - -

Source: Own calculations based on data from the BACI database, HS 2002 revision, and WITS, latest year

Myanmar exporters pay so little in tariffs on their export markets that the EGA

is unlikely to influence their market access. Most of Myanmar’s environmental

goods exports already enter export markets on duty free due to preferential

trading arrangements. Table 10 estimates that Myanmar’s environmental goods

exporters pay less than $100,000 in import tariffs.

A search for alternative environmental goods, which are not represented on

our “best guess” base list of products, reveals little beyond what is reported in

table 10. Myanmar’s primary export commodity is natural gas, which may be

designated as an environmental good due to its relatively low CO2 emission

relative to competing fossil fuels. However, most of Myanmar’s natural gas

exports are destined for Thailand, which is not part of the EGA, and none of the

exports face any import duties anyway. So even if natural gas were to be

included in the final agreement, Myanmar would see no change in its market

access.

4.1.2 Accessing global value chains

Few LDCs are strongly integrated in global value chains for manufactures.

Bangladesh and to some extent Laos and Cambodia are exceptions because

they produce for garment value chains. If an opportunity exists for an LDC to


43

integrate into global environmental good value chain, it would be a South East

Asian LDC because of the proximity to major industry players in countries like

China and Korea who might want to locate parts of the value chain in an LDC.

Myanmar is not likely to start producing components for global environmental

goods value chains. During fieldwork in Myanmar for this report, no local

production of parts or components for environmental good value chains could be

found. Even relatively simple products like household solar energy stations were

imported assembled and ready to use.

Myanmar is just beginning to integrate into the global garment value chain

(Jensen 2015). The industry has grown fast, doubling in size in about three years

(MGMA 2015). Today, Myanmar exports for about $1.5 billion a year. However,

Myanmar remains a small exporter. Cambodia is about three times bigger,

Vietnam and Bangladesh 10-15 times bigger and China more than 100 times

bigger. The Myanmar garment industry looks towards the global brands that

control the global value chains. The German sportswear brand Adidas has begun

sourcing Myanmar garments and San Francisco-based GAP has announced it

will buy from a South Korean firm owning factories in Myanmar. The brands

only put technologically simple activities in Myanmar. Myanmar produces “cut,

make and pack” garments, where the producer receives all materials (fabric,

buttons, thread, etc.) and patterns from the buyer, produces according to the

patterns and pack the garment for export. The level of technological

sophistication displayed in such production is not yet sufficient to attract

investors interested in the production of environmental goods.

4.1.3 Standards and sustainability criteria

The Myanmar capacity to influence international standard setting and to

certify compliance is very low (Jensen 2015). This lack of capacity can diminish

Myanmar’s ability to export EPPs under the EGA should Myanmar choose to join

and should the right EPPs become recognized as environmental goods in the

EGA.


44

APEC discussed potential EPPs that could be of interest to Myanmar during

the negotiations leading to the APEC environmental goods initiative. These

potential EPPs are primarily agricultural products not discussed by EGA

negotiators. Indonesia pushed for the recognition of palm oil and rubber – that

are both exported by Myanmar – as environmental goods. Despite numerous

attempts, primarily developed APEC members rejected the idea. Especially palm

oil is a controversial product because it is frequently linked with large scale

deforestation and would threaten the environmental credibility of the initiative.

However, it is perfectly possible to produce environmentally sustainable palm

oil, but to recognize such palm oil as an environmental good would require

international agreement on sustainability criteria and a credible certification

mechanism.

The case of forestry exemplifies the difficulties of using sustainability criteria

in Myanmar. In Myanmar, around 500,000 people depend on the production of

forestry products. The export of forestry products constitutes about 10% of

official Myanmar exports. Logging is an important source of income for ethnic

minorities especially in the Kachin State along the Chinese border and in the

Karen State along the Thai border (Woods and Canby 2011). Forestry is a

contentious issue because of high rates of unsustainable and illegal logging and

high activity in ethnic minority areas marked by civil conflict. Myanmar has no

internationally recognized certification system (Republic of the Union of

Myanmar 2014).

The Ministry of Environmental Conservation and Forestry has established the

Myanmar Forestry Certification Committee and tasked it with developing an

internationally recognized certification scheme. This Committee was

established in 1998, yet progress has been modest. As a result, the teak forests

that have made Myanmar forestry famous have become fragmented and greatly

reduced.


45

4.2 Access to imports

4.2.1 Promoting access to environmental technologies through the EGA

Myanmar imports of environmental goods are less concentrated than its

exports. Table 11 presents Myanmar’s total imports of environmental goods and

applied import tariffs alongside more detailed data on the most important

import articles. The largest product category at the HS 6-digit level only

represents 5.8% of all environmental goods imports. The table suggest that the

number should be interpreted carefully. Most of the products listed in table 11

cover dual-use products and ex-outs. Tubes and pipes, water pumps and taps

and valves all have important environmental uses in wastewater management,

sanitation and water supply, but may also be used to transport other liquids with

no environmental benefits. Towers and lattice masts of iron and steel are

typically qualified by an ex-out identifying specifically wind turbine towers as

environmental goods, but not other structures (e.g. mobile masts), and other

articles of iron and steel may cover just about anything. Only the photosensitive

semiconductor devices can with some certainty be designated as clear

environmental goods. The numbers in table 11 are therefore likely to exaggerate

somewhat the actual imports of environmental goods in Myanmar.

Unfortunately, we do not have access to more detailed data, which could provide

a more accurate estimate.

Tariffs are very low but few environmental goods enter duty free. This is

potentially important as the trade restrictions generated by import tariffs are not

just reflected in the size of the duty, but also by the delays and transactions costs

caused by customs procedures. Several of the tariffs are set at 1% or 1.5% that

amounts to very little tariff revenue, but may add substantial costs to importers.


46

Table 11: Imports of environmental goods and applied tariffs in Myanmar,

2013

Imports Tariffs


average Min. Max.

Myanmar 1,185 6.6 2.2 0 15

Centrifugal pumps

(HS 841370) 69 0.4 0 0 0

Parts for combustion

engines (HS 840999) 59 0.3 3.4 1 5

Towers and lattice masts

of iron/steel (HS 730820) 58 0.3 1.5 1.5 1.5

Tubes, pipes & hollow

profiles (HS 730660) 51 0.3 1.5 1.5 1.5

Other articles of iron

and steel (HS 732690) 49 0.3 1.3 0 1.5

Taps, cocks and valves

(HS 848180) 47 0.3 1 1 1

Photosensitive semi-

conductor devices (HS

854140)a)

46 0.3 7.5 7.5 7.5

Notes: a) Business representatives in Yangon reported that the government has recently eliminated the tariff on solar panels. The data reported here, based on the WITS database may be a bit outdated. Source: Own calculations based on data from the BACI database, HS 2002 revision, and WITS, latest year.

Besides environmental benefits produced by improved access to environmental

technologies, simplifying the tariff structure and eliminating such “nuisance

tariffs” may lower transaction costs.

Table 11 suggests that the tariff on “photosensitive semiconductor devices”

(solar panels) may be relatively high, 7.5%, but in this particular case, the

numbers in the WITS database may outdated. Some of business representatives

we met in Yangon reported that imports of solar panels have recently become

duty free.

4.2.2 Technology transfer

While the tariffs for the import of environmental goods are generally

conducive to the import of green technology, Myanmar struggles with a


47

number of other constraints to technology transfer. This section looks at the

case of renewable energy.

Myanmar has one of the world’s lowest rates of electrification. Only a third of

the population have access to electricity and most villages use traditional sources

like kerosene lamps for lighting. The government – assisted by international

donors like the World Bank, the Asian Development Bank (ADB) and the Japan

International Cooperation Agency (JICA) – has committed to achieving universal

electricity access by 2030. This plan implies that 7.2 million new households must

be connected to a source of electricity within the next 15 years (World Bank 2014).

Technologies are available that may address the energy needs of Myanmar.

Hydropower is the dominant source of electricity today, and could be developed

much further. The wind energy company Vestas has signed an agreement with

one of Myanmar’s leading power developer Zeya & Associates that aims at

developing projects for wind power. Myanmar also has unexploited geothermal

potential. Finally, solar energy has high potential due to Myanmar’s tropical

location. Solar energy is a source of both large scale solar farm projects and small

scale village and household projects that may deliver electricity to villages

without access to the national electricity grid because solar energy is ideal for

small and micro scale power plants.

UNDP (2013) discusses the challenges Myanmar faces in energy access. These

challenges are summarized in table 12. UNDP (2013) paint a picture of Myanmar

as a place where investments in renewable energy is deterred by both political

and financial factors, a picture that is confirmed by the analytical work of other

donors (ADB 2011). First, the government focuses on fossil fuel extraction mostly

for export and on developing the central electricity grid rather than promoting

renewable energy sources apart from large scale hydropower dams. Second,

resources are few and hard to access. Private investments are scarce partly

because Myanmar remains a state controlled economy with restrictions on

foreign investment. Parliament is elaborating a new investment law, but has not

adopted it yet. The resources of the government itself are scarce. The


48

government’s resources have been curtailed by falling prices for Myanmar’s

natural gas exports. The banking system is heavily controlled and very

inefficient. The rural population in particular faces big problems in accessing

finance and even private firms in the capital of Yangon have difficulties in

financing investments that would be profitable under normal interest rates.

Third, government policy is uncoordinated and different agencies fight for

control.

Table 12. Summary of Challenges to Expanding Energy Access

Challenge Description

Conflicting priorities

The government remains focused on producing crude oil and natural gas for export to meet regional energy demands

The government is committed to upgrading the national grid and building centralized hydroelectric, fossil-fuel, and even nuclear plants to power industrial and agricultural facilities instead of addressing off-grid energy access issues

Lack of resources

The country’s state-controlled economy makes it difficult to procure international financing and investment in the energy sector

A growing deficit and rising inflation constrain government budgets for electricity and energy

Declining natural gas prices have further reduced state revenue available for energy projects

Poor access to credit and limited rural banking networks compound efforts to give loans to energy-deprived households

Policy

More than a dozen government agencies opt for control and jurisdiction over energy and electricity planning

Scores of actors in the private sector and civil society further complicate the regulatory landscape

Source: UNDP (2013), Table 10.

4.3 Tariff revenue

Protecting tariff revenue, a traditional argument for staying outside trade

liberalisation agreements, is not a valid reason for Myanmar to not participate

in the EGA negotiations. Tariffs are already very low and we estimate


49

Myanmar’s total loss of tariff revenue to be roughly $24.5 million or 2.7% of all

estimated tariff revenue. This is, however, too much. Accounting for dual-use

products and ex-outs is likely to substantially reduce the import volumes

designated as environmental and thereby the tariff exemptions.

4.4 Implementation costs

During fieldwork, the authors interviewed a series of firms supplying off grid

solar technology to remote villages. Such technologies include solar lamps and

solar battery charging stations. Villagers use the technology for lighting and to

charge cells phone and similar small electronics. Solar battery charging stations

may be the basis for a small village business selling charging services to their

community.

In Myanmar, imports are subject to complex and intransparent procedures

including import permits and customs classification and valuation often

causing considerable delays that increase costs and decrease the flexibility and

predictability of the importer. The importers of solar technology universally

complained about the lack of transparency of customs procedures. Overall, tariff

rates are low, but as one importer stated “they are different for every shipment”.

The costs caused by these procedures create an additional burden to the tariffs

imposed.

The nature of the technology imported partly explains the intransparent

customs procedures. The firms supply the technology as a package containing a

small solar panel (typically ranging between the sizes of an A5 and an A4 sheet),

battery, charger, lamp, USB outlet and wires. Each individual component may

fall under its own individual tariff line. The customs officer will need to decide

how to treat the technology. Importers report that this leads to lengthy

negotiations. Some officials will put the full package under one tariff line, others

will try to assess the total value of the package and calculate a compound tariff.

Importers complain that customs officials do not trust the documentation

supplied. A shipment is accompanied by a commercial invoice and a customs


50

value declaration indicating the type of equipment and its value, but rather than

trust these, customs officials often search the internet to assess what they regard

as the true value of the product.

Why the customs officials do not apply procedures uniformly and predictably

is unknown. One explanation is that much of the technology imported is new to

Myanmar and thus unknown to the officials. Another is that by creating

uncertainty about the proper valuation and classification of the technology, the

officials establish negotiation issues that can eventually be settled through

unofficial payments. No matter what the reason is, it is certain that the basis of

the system is the complexity of the tariff schedule requiring different pieces of

the technology to be treated differently.

Importers interviewed state that their main concern is not tariffs to be paid,

because tariffs are generally low in the order of between 0% and 10%. They are

worried about the costs of delays and the lack of predictability. If Myanmar were

to join a future EGA, the problem of complex and intransparent customs

procedures may worsen if the EGA would include many ex outs. Thus, what

would be a liberalisation in theory because tariffs would officially fall – although

not much because they are already low – could in practice hinder trade through

the increased costs of intransparent customs procedures.


51

5. Conclusions and policy recommendations

The EGA currently being discussed will neither benefit nor harm LDCs. LDCs

exports will hardly be affected. LDCs export about $1 billion of environmental

goods equivalent to about half a per cent of their total exports. LDCs export a

third of the total to the countries negotiating the EGA, thus the EGA will reduce

the tariffs of this third only. The aggregate impact of the EGA on LDCs export

performance will therefore be very small. Furthermore, LDCs already access the

markets of most EGA negotiating countries tariff free due to preferential trading

arrangements. China is the major exception.

The impact on individual industries looks to be insignificant in most cases too.

The environmental goods being discussed in the EGA are almost exclusively

technology intensive manufactured products traded in global value chains that

LDCs are not taking part in. We analysed the potential of Myanmar to integrate

into such value chains. Myanmar is, because of its large size and its location in

dynamic South East Asia, one of the best placed LDCs to export through global

environmental goods value chains. But Myanmar is already struggling to

integrate into simpler garment value chains and the South East Asian countries

experiencing increased integration are middle income countries like Thailand

and the Philippines.

LDCs need green technologies to combat a multitude of environmental

problems, but in most LDCs the EGA is unlikely to provide significantly

better access to these technologies. In total, LDCs import about $13 billion’s

worth of environmental goods, more than ten times of what they export – a trade

pattern that reflects the high-technology nature of most environmental goods. To

increase imports and thus exploit available green technologies, LDCs can join the

EGA negotiations (or unilaterally lower tariffs). Tariffs will not, however, fall

much in most LDCs because LDCs tax their environmental goods imports

moderately. The average tariff is 8.6%. For selected industries in selected LDCs

cutting tariffs is a tool to increase imports because for these industries and

countries tariff peaks of up to 40% are in place. Eleven LDCs have relatively high


52

average tariffs (more than 10%). It is, however, an open question how technology

transfer will react to moderately lower prices of imported technology brought

about by cutting import tariffs. In Myanmar, for example, many factors beyond

price constrain the adoption of renewable energy technology, like adverse

government policy and low private investment.

With LDCs unlikely to gain new markets and almost as little likely to increase the

use of green technology, the EGA under negotiation looks like an insignificant

agreement for them. But the EGA might evolve over time and if it does, it may

become more relevant to the LDCs. Some EGA countries push to include a

review mechanism that could open the agreement to new products and market

barriers in the future. Observers like UNCTAD (2005) and Hamwey (2005) argue

that LDCs will have strong export interests in the inclusion of many EPPs. Yet,

we find that the types of EPPs discussed by these two observers are improbable

to be included in the future both because of many EGA countries reluctance to

include agricultural goods and the questionable environmental benefits of EPPs

like cotton and cotton-based products.

The inclusion of non-tariff measures could interest LDCs. Standards and

sustainability criteria have been mentioned as measures likely to be included. If

the EGA evolves into a forum for settling difficult questions of what is perceived

to be a “green” product, LDCs will want to participate in those discussions.

Because of the economic weight of the EGA countries, standards and

sustainability criteria adopted under a future EGA will become de facto global

standards. They may become reference points even for products not covered by

the EGA.

Should LDCs decide to join the EGA, the demand for both SDT and A4T is

limited if the EGA only includes environmental goods from the list being

negotiated now. The main issues are assistance to tax reform, compensation for

lost tariff revenues, and assistance to technology transfer. An EGA with many ex

out complicates the tariff schedule and go against the trend in customs reform in

developing countries towards simplification. As the Myanmar case study


53

exemplified, LDCs struggle when tariff schedules are complex. A limited number

of LDCs earn a sizeable share of their tariff revenue from environmental goods

and will need compensation if cutting tariffs on such goods. Compensation could

be in the form of assistance to customs reform that identifies new sources of

revenue. Technology transfer is a most complex issue and various mechanisms to

promote it are already under development, for example under the UNFCCC. It

appears more sensible to view technology transfer as a broad capacity building

issue than a narrow trade issue especially as the impetus to it from the EGA

looks to be minimal for LDCs.

The demand for SDT and A4T may be much higher if the EGA expands to

regulate more complex market barriers like standards and sustainability

criteria. The EGA most likely to be adopted – a narrow EGA focusing on tariff

reductions on high technology products and components – will incorporate a

strong element of SDT to LDCs in the form of extension of any benefits agreed

through the MFN principle. But the EGA countries cannot extend the benefits of

negotiations on standards and sustainability criteria to LDCs in the same way.

The MFN principle would dictate that LDC products should adhere to agreed

standards the same way as for the products of EGA countries (and of all other

WTO members). But the LDCs’ interests are not only to be treated in the same

way; rather their interests are in influencing the substance of the standards. That

influence they can only get by joining the EGA. To participate effectively in the

technically demanding issues of standards and sustainability criteria, LDCs

would need A4T.

The interests of LDCs in international trade negotiation are a Danish priority

as is the conclusion of the EGA negotiations. These two priorities are aligned.

The EGA under negotiation does not harm LDC interests. A future EGA

incorporating more products and more market access barriers offers

opportunities to offer benefits to LDCs. These benefits will be the inclusion of

carefully chosen EPPs and the regulation of non-tariff measures like standards

and sustainability criteria. The exact choice of products and the degree to which


54

LDCs will be able to take part in the discussion of non-tariff barriers will

determine how successful they will be in enjoying the benefits of this future,

larger EGA. Denmark can play an important role in supporting LDCs to choose

the right EPPs for liberalisation and to discuss non-tariff barriers.


55

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